How to roll over your 401(k) directly to an IRA

Retirement account transfer after leaving a job

Even after you’ve left your job, your 401(k) still belongs to you. What you decide to do with your retirement account can have an impact on your retirement strategy, so make sure you understand your options. You can:

• Roll the money over to an IRA: You can open an IRA and move (also known as rolling over) the money in your 401(k) into the IRA. With an IRA, you generally have a variety of investment options, no or low administration fees, and greater withdrawal flexibility than you have with a 401(k).
• Roll the money over to your new employer’s 401(k): Your new employer may accept a rollover from your previous employer’s retirement plan. If it’s allowed, you can combine your 401(k)s and continue enjoying the benefits of a workplace retirement plan.
• Keep the money in your former employer’s 401(k) plan: Some companies allow you to keep your retirement savings in their plans after you leave. Your earnings still have the tax advantages of being in a 401(k), but you won’t be able to contribute additional money to the account.
• Withdraw the money as cash: You can choose to take the money, which is referred to as a lump-sum distribution. The taxable portion of your distribution is subject to mandatory federal withholding and any applicable state tax withholding. If you’re younger than age 59½, a 10% early withdrawal penalty will apply (subject to limited exceptions).

As other options are available, you're encouraged to review whether consolidating accounts, staying in a retirement plan, rolling over into an IRA, or another option is best, as there are advantages and disadvantages to each.

How to roll over your money from a 401(k) to an IRA

By moving your money from a 401(k) to an IRA, you may be able to avoid potential tax penalties. There are two ways you can move your money: a direct rollover and a 60-day rollover.

Direct rollover of your 401(k) to an IRA

If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to an IRA. You can contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. If you already have an IRA, you could consider combining retirement plans from previous employment to your IRA. No taxes will be withheld from your transfer amount.¹ Alternatively, you have the option to roll over your distribution to another retirement plan.

Understanding rollover rules

It’s important that you know all the rules before deciding if and what type of rollover you want to do. You have 60 days from the date you receive the money from your 401(k) or IRA to roll it over to another plan or IRA. The IRS may waive the 60-day rollover requirement in certain situations.

Moving your 401(k) money to an IRA can help you avoid paying potential tax penalties and continue to save for retirement. Having your 401(k) provider send the money directly to the new plan can be helpful so you won’t have to worry about the 60-day deadline.

Know the pros and cons of rolling over your 401(k)

When you leave a job, you have a few options for the money in your 401(k). You can roll it over to an IRA or another retirement plan, keep it where it is, or take the cash. And if you decide to roll it over to another plan, you have to make another decision about how to do the actual rollover: Ask your plan administrator to send the money directly from one plan to another or move the money yourself. 

The direct rollover is a relatively simple request, and it helps you avoid potential tax and penalties. Doing it yourself is more complicated, as you have only 60 days to move your money to the new account, you’ll have to cover the withheld taxes, and you may owe potential tax penalties. What to do with your 401(k) is an important decision that can affect your retirement savings and how much you’ll pay in taxes and penalties. Do your own research or reach out to your employer, retirement plan provider, or a financial professional for help in making the decision that’s right for you. 

1 "Rollovers of Retirement Plan and IRA Distributions," Internal Revenue Service, irs.gov.

As other options are available, you are encouraged to review whether consolidating accounts, staying in a retirement plan, rolling over into an IRA, or another option is best, as there are advantages and disadvantages to each.

Any tax-related discussion contained in this publication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any tax penalties or promoting, marketing, or recommending to any other party any transaction or matter addressed. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this publication. Income-tax rules on how withdrawals are handled may vary from state to state.